Credit Card Best Practices Can Mean Big Savings for Hotels
By David Hogan Executive Director of Major Accounts, Heartland Payment Systems | June 22, 2014
Every hotel – large or small, independent or branded – operates using established front office procedures for processing credit card information and payments, and they are generally followed most of the time. However, we have noticed that hotels sometimes deviate from what we would call “best practices” for processing their guest’s credit cards. One reason for this may be that while most hotel owners and managers follow the credit card procedures they were taught, they often don’t really know the “why” behind these standard practices and procedures – or what the impact might be to the bottom line for not following them.
Deviating from, or not following best practices for lodging industry credit card processing can cost any hotel hundreds or even thousands of dollars a year. What follows is a close look at six of the most important best practices for lodging industry credit card processing.
Best Practice #1 - Always obtain a valid authorization from the cardholder’s issuing bank
Pre-authorization may sound basic and simple, but there are several wrinkles to consider. For instance, many hotels routinely obtain authorization for only one night’s room and taxes. A better practice – and the one that card brands have set as a standard – is to get authorization during check-in for the entire length of stay, including taxes.
Obtaining the full authorization at check-in will shield hotels from potential disputes later on, and prevent possible declines based on insufficient funds. As every hotel owner/manager knows, if there are insufficient funds in a guest’s credit card limit during checkout, the hotel is left holding the bag. How much money has your hotel lost in the past year due to chargebacks?
Upon check-in a valid authorization should be obtained for the estimated length of the stay. Should the cardholder decide to stay longer, incremental authorizations should be obtained and settled weekly.
Another important authorization practice is to settle transactions and obtain a new authorization once a week for extended stays. The card brands require you to settle once a week with every guest, and they are allowed to retract funds if an authorization is not settled within seven days. This practice helps avoid potential dispute losses due to invalid bank approval. Also, the card brands allow adjustments up to 15 percent above the authorized amount to cover incidental charges such as room service, movies, mini-bars, and other services. Normally, authorizations for the estimated length of stay will keep you within 15 percent of the total settled transaction amount. However, if a guest charges large-ticket items to their room, such as extravagant room service bills or meeting and banquet events, the front office should post the charges to the folio daily and obtain incremental authorizations as needed to cover additional costs.
Finally, when guests check out early and the final transaction settlement is less than the estimated authorization, you need to process an authorization reversal promptly. For example, suppose the guest checks out with $200 worth of charges on their folio. If $300 was authorized, the hotel should send a $100 reversal. This will avoid transaction fees levied on your hotel and prevent unnecessary impact on the cardholder’s account. This is another credit card brand policy that should not be ignored. The transaction-based fees may be relatively small, but they do add up if you routinely overlook authorization reversals. More importantly, be aware that the card brands have the right to assess chronic offenders with much heavier compliance fees. These compliance fees are rarely assessed, but why not avoid them by following established procedures?
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